Jonathan Chevreau, personal finance columnist for The National Post, reports on a study by Ibbotson Associates that shows that adding precious metals (gold, silver and platinum) to a portfolio composed of traditional asset classes “marginally improved the risk-return trade-off. The Ibbotson report was commissioned by Bullion Marketing Services Inc., which runs the Millennium BullionFund.
Gold does have some value in diversifying a portfolio owing to its low correlation with paper assets (as pointed out in the study). However, the long-term return of gold has been terrible. In any case, the BullionFund is a poor way to get exposure to precious metals. The fund charges a commission of upto 5% and a MER of 2.75%. If we assume that precious metals just keep pace with inflation, an investment in the BullionFund will be down approx. 8% just in the first year. In 25 years, assuming constant real prices, the investment would be down 50% in real-terms. A (slightly) better alternative would be the GLD ETF (MER 0.4%) and the silver ETF that will be launched in the future.
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